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Zinc prices rally on US rate cut hopes, despite supply oversupply

by August 27, 2025
by August 27, 2025

Zinc prices surged above the $2,800 per ton threshold on Friday, buoyed by hopes of an early US interest rate cut following the Federal Reserve Chairman Powell’s speech. 

However, the sustainability of these gains remains uncertain, especially as the London Metal Exchange (LME) was closed for a bank holiday on Monday, leaving market signals mixed.

“Fed Chairman Powell’s speech fueled hopes of an early interest rate cut in the US. It remains to be seen whether the gains can be sustained, as on the oil market…,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said. 

LME-registered inventories are providing support to zinc prices, having decreased by approximately 50,000 tons in the last five weeks alone, and by about 200,000 tons since December.

Inventories have fallen to their lowest point since November 2023, yet the market appears to be adequately supplied.

Despite a small supply deficit in June, the International Lead and Zinc Study Group (ILZSG) indicated an overall oversupply for the first half of the year, with supply surpassing demand by nearly 50,000 tons.

This represents a significant portion—half—of the ILZSG’s total forecast for the year, made in April. Notably, mine production saw a substantial 6% increase.

China imports

A substantial recovery in China’s zinc ore imports this year indicates a plentiful future supply.

In July, for the first time ever, over 500,000 tons were recorded. This contributed to a 45% increase in the first seven months compared to the same period last year.

Lambrecht said:

The significant increase in processing fees in Chinese zinc smelters also suggests a recovery in production.

Zinc smelter processing fees have rebounded to $95 per ton on the spot market, according to Bloomberg statistics. 

This follows a period in December when smelters were paying USD 35 per ton for processing.

Steel production 

In July, global steel production saw a further decline, reaching 150.1 million tons. This figure represents a decrease of 1 million tons compared to June’s production.

Compared with the previous year, production fell by 2.7 million tons, or 1.8%.

In July, China’s production decreased by 3.2 million tons compared to the previous year, once again serving as the primary cause for the overall decline.

Conversely, global production saw a slight increase, though significant disparities still exist.

Production in India saw double-digit growth, contrasting with declines in Germany (also double-digit), Japan, Russia, and South Korea. Meanwhile, the US and Turkey experienced slight increases in production.

Manufacturing sector 

Last week, the manufacturing sector’s flash Purchasing Managers’ Index (PMI) estimates generally showed improvement, with only the UK experiencing a minor dip.

“This could also indicate a revival in industrial demand for steel in August, following a significant decline in PMIs in July,” Volkmar Baur, FX analyst at Commerzbank, said in a report. 

Should PMIs in other regions also rebound, it would suggest that the significant drop observed in July was an anomaly.

Iron ore prices have recently remained strong, exceeding $100 per ton on the Singapore exchange.

“However, given the weakness of production figures in China and the ongoing malaise in the Chinese real estate market, we consider the current price level to be ambitious,” Baur said. 

The post Zinc prices rally on US rate cut hopes, despite supply oversupply appeared first on Invezz

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